Beginning with the 2009 report, the USTR began hosting a public hearing and making small efforts to improve public participation in the Special 301 adjudication process. But, as in the past, the 2012 report shows that USTR largely ignores the comments of those it disagrees with. Indeed, despite specific requests that the agency at least respond to serious accusations of factual and legal error — the Report simply pretends that the challenges to its methodology were never made. This course of action, which has been constant in recent years despite an uptick in public interest participation in the process, is strong evidence that Special 301 is an illegal process under US law because it acts arbitrarily.

Particularly glaring is the refusal of USTR to respond to serious complaints that its expansions or omissions in various areas render it illegal under either U.S. law or World Trade Organization rules. Here are three key legal challenges to the Special 301 process and methodology presented in the record of the 2012 301 hearing that are ignored in the report:

There have been multiple submissions in the Special 301 process over the last several years challenging the current use of Special 301’s escalating watch lists as violations of the WTO’s dispute settlement understanding. The understanding states:

“Members shall not make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures of this understanding.”

In a WTO case against the more general Section 301 program, a WTO panel instructed that

“a threat of unilateral action, especially when it emanates from an economically powerful Member, may in effect be forced to give in to the demands imposed by the Member exerting the threat”

Thus, threats alone of unilateral trade action, even if not carried out, also violate the WTO dispute settlement understanding.

The Special 301 program is an institutionalized threat of unilateral trade sanction by the U.S. against other countries over matters – intellectual property law and enforcement – explicitly covered by the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights. That much is clear from the USTR report, which explains:

“[U]nder Special 301 provisions, USTR must identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on IPR protection. . . . Priority Foreign Countries are potentially subject to an investigation under the Section 301 provisions of the Trade Act of 1974. . . . Placement of a trading partner on the Priority Watch List or Watch List indicates that particular problems exist in that country with respect to IPR protection, enforcement, or market access for persons relying on IPR. Countries placed on the Priority Watch List are the focus of increased bilateral attention concerning the problem areas.”

This program, which predates the WTO accords, exists to enable the U.S. to first threaten, and then implement, unilateral trade sanctions against foreign countries over IP matters. As such, the program should have been disbanded after the WTO came into effect, as many countries expected. Instead, Special 301 was amended to allow sanctions for policies explicitly allowed by the WTO, and the number of countries on 301 watch lists dramatically increased.

So how does USTR justify the continuance of this system of trade threats as in compliance with the WTO? It doesn’t. It just ignores the complaint.

2. Non-discriminatory reimbursement programs that reduce medicine prices are beyond the scope of the 301 statute.

As in previous years, the 2012 Report complains about numerous countries for having drug pricing or reimbursement policies that having nothing to do with intellectual property or trade. Numerous U.S. health officials global health organizations have challenged the statutory basis for such identifications.

In the 2011 hearing , Pharma’s Jay Taylor explained his application of Special 301 to drug pricing by saying that “If you have a single payer system that devalues our company that comes back and effects research and development here in the US.” The problem with this reasoning, apparently adopted by the USTR, is that it is not what the statute says.

The 2012 report lists complaints over foreign pricing programs under a section of the report identifying “market access” barriers to pharmaceutical firms. Special 301 has a statutory definition of “market access,” but it does not include price regulation within its definition. 19 USC 2242(d)(3) states that a country “denies fair and equitable market access” under the terms of the statute only if its laws and regulations either “(A) violate provisions of international law or international agreements,” or “(B) constitute discriminatory nontariff trade barriers.”

Thus, to list a reimbursement program for cost restraining properties that do not violate any international agreement, they must be “discriminatory.” Yet, the 301 Report does not allege that most of the pricing programs noted in its report (including, for example, New Zealand’s PHAMRAC program) do not apply equally to local and foreign products. Instead, the complaint is just that they are too effective at keeping all prices down.

How does USTR explain it statutory interpretation in response to these kinds of challenges? It does not, of course. It just ignores the argument.

3. “Intellectual property” under 301 includes limitations and exceptions.

Internet policy groups and companies have long argued in their submissions that, to achieve some balance in Special 301, it should at least beat up on foreign countries for lacking U.S.-style limitations and exceptions as well as U.S.-style proprietor rights.

This argument has a legal basis in the statute. Special 301 orders USTR to single out countries that lack “adequate and effective intellectual property.” It is well known that adequate intellectual property systems result from a balance of proprietor rights and user rights. So USTR should be examining both sides of every country’s laws. But it doesn’t.

When USTR says “stakeholders” in the report, it means only brand name pharmaceutical companies (not generics) and big Hollywood media content owners (not internet service providers).The Computer and Communications Industry Association has gone so far as to list countries that it finds have inadequate limitations and exceptions for U.S. companies doing business there, and these lists appear in the 2012 and previous Special 301 records. But those countries never appear in the report.

Why, for example, does the Special 301 Report not list Belgium for holding search engines liable for copyright violations for indexing websites, a practice allowed under U.S. fair use? Or why is France not on the list for prohibiting auction sites like E-bay from using trademark names and references to accurately describe items being lawfully sold through its service, a practice allowed by trademark nominative use and fair use doctrines? We get no answer.

THE PAPER TIGER

Public interest groups are ignored by Special 301 — so why don’t they ignore it?

Many countries, like Brazil, actively ignore the report and seem uninfluenced by it. But others, including many named int he reports best practices section, take the report seriously and amend their laws to comply with its unilateral dictates. And that is why a select group of U.S. industries – represented by PhRMA and IIPA – take it so seriously. Sometimes it still works.

The first step toward putting Special 301 in its place may be to continue to advertise its illegality under US and WTO law to encourage other countries to pay it no heed.

The real answer to the WTO challenges raised above is that Special 301 is a paper tiger. Although the agency does not say it in the report, the apparent policy is that USTR will not list any country that is a WTO member as a Priority Foreign Country because that would be a very direct threat of unilateral sanctions in violation of the WTO. USTR assumes, correctly so far, that countries will not challenge the program as long as it is only a series of “watch” lists, with no direct threat attached. Under the WTO’s reasoning, even the watch lists are probably vulnerable, since they too are threats of escalation and findings of trade barriers not authorized by the WTO. At minimum, countries should treat the program for what it is – all bark and no bite.

But the continuation of a program that lacks basic elements of due process and participatory governance should continue to bother us. Here is one easy change that could change the current dynamics — Congress should amend the Special 301 statute, or the administration should dictate by executive order, that the report act alike any common rule making and respond to all the submissions put before it. Then, at least, we could see what they are thinking and perhaps better challenge that thinking.

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The Clean IT project is carried out with the financial support from the Prevention of and Fight against Crime Programme of the European Union, European Commission – Directorate-General Justice, Freedom and Security.

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